Spanish Minister Calls on European Central Bank to Do More as Crisis Accelerates

A Spanish minister called on the European Central Bank to do more to stem the sovereign debt crisis as the cost of insuring the country’s bonds against default surged to a record.

“It’s a profound mistake by the European Central Bank to be so restrictive at the moment,” Jaime Garcia-Legaz, a deputy to Economy Minister Luis de Guindos, said in an interview with La Sexta broadcaster today.

His comments came as ECB officials split over the steps to tame the crisis amid growing expectations that Spain will be the next euro member to seek a European bailout. Spanish banks’ borrowings from the ECB surged almost 50 percent in March, data showed today, as they took almost a third of the longer-term lending offered to euro-region institutions.

Prime Minister Mariano Rajoy is struggling to convince investors he can get Spain’s finances under control after last month refusing to meet deficit targets set by the European Commission and the previous government. While Rajoy said yesterday Spain won’t need a rescue, credit-default swaps rose 17 basis points to 498 as of 4 p.m. in London today, surpassing the all-time high closing price of 493, according to CMA.

Garcia-Legaz’s comments go beyond those of his prime minister, who has repeatedly praised the ECB’s extraordinary liquidity measures. Budget Minister Cristobal Montoro referred today to the “importance of the role” of European institutions in fighting the crisis.

Split?

ECB officials are nevertheless struggling to present a united front over what to do next as investors dump Spanish bonds amid renewed concern about bad assets at the country’s banks. While Executive Board member Benoit Coeure signaled on April 11 the bank could start buying Spanish bonds, his Dutch colleague Klaas Knot said today that the ECB is “very far” from reactivating a policy that failed to stop a selloff in Spanish bonds in November.

“I hope we never have to use it again,” he said in Amsterdam.

Spanish yields last surged above 6 percent in August, prompting the ECB to start buying bonds, and reached 6.78 percent in November before ECB President Mario Draghi said the bank would offer financial institutions unlimited three-year loans.

Taming Spain

That measure helped tame Spanish borrowing costs, as institutions used ECB funds to pile up on the nation’s bonds. Spanish banks’ holdings of government debt jumped to 220 billion euros ($288 billion) in January from 178 billion euros in November, according to data from the Treasury.

Average net borrowings from the ECB by Spanish banks climbed to 227.6 billion euros last month from 152.4 billion euros in February, the Bank of Spain said on its website today. In net terms, they tapped more than 60 percent of the amount taken by euro-region lenders.

Garcia-Legaz also reminded Spanish citizens that they need to accept the austerity measures pushed through by Rajoy’s government, which has cut spending, raised taxes and taken steps to overhaul the economy since coming to power on Dec. 21.

Spaniards shouldn’t “make the mistake of thinking all our problems are because the ECB or Germany is squeezing us,” said Garcia-Legaz, a former secretary general of the Faes research institute that is linked to the ruling People’s Party. The government needs to implement budget cuts as Spain is in an “emergency” situation.